Free Essay: Pros and Cons of Joint Ventures
Considering the pros and cons of joint ventures is always important for companies before making any move to engage in one. A joint venture refers to an organization that involves two or even more companies or individuals that join together forming a temporary, limited partnership. The groups in a joint venture combine resources hoping that they will accomplish certain profitable goals.
An example of a joint venture is when two oil firms come together forming a joint venture in exploring and drilling new oil wells. Joint ventures have become popular over the years due to the benefits that they offer the involved companies. Nevertheless, they also have some drawbacks too.
One of the pros of joint ventures is sharing of the involved risk. In every business venture there is risk. When a company engages in a business venture alone, it becomes liable for the risk involved in the venture. However, when a company engages in a joint venture it shares the risk with other partners.
A firm also benefits from a joint venture due to the fact that different sets of skills are brought together. Multiple parties that come together bring in different skills which benefit every partner in the venture. For instance, if a company is adept in business and financial side, and great in the marketing side, the partners in the joint venture can combine their skills to enhance performance.
Market share is also increased by entering a joint venture. This is because the companies that engage in a joint venture combine their market shares. This enables the firms in a joint venture to distribute their services and goods to a wider market increasing their revenue.
Among the cons of joint ventures include sharing of rewards. Rewards are shared the same way risks are shared. If the stakes of partners in a joint venture are the same, profit is shared equally. This becomes a disadvantage for a company that believes that it can perform better on its own.
Decision making is also made slower because partners have to engage in consultations. A decision is only made if all parties agree to it. This slows down the operations and disagreements can occur. Disagreements are common when the companies involved in a joint venture have varying management styles, philosophies and cultures.
Additionally, managerial participation is reduced and this can result in loss of the control of the overall business operations. This can have negative effects on various aspects including causing undesired outcome from the project.
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